July 2 (Bloomberg) -- A collapse in the number of tankers booked to haul 2 million-barrel cargoes of Middle East oil to the U.S. may be a sign that the world’s largest crude buyer is poised to cut imports, a Morgan Stanley analyst said.
Twelve very large crude carriers were booked last month to ship Persian Gulf crude to the U.S., compared with 37 in May, Fotis Giannakoulis, a New York-based analyst at the investment bank, said in an e-mailed report today.
U.S. crude stocks climbed to 387.3 million barrels in June to the highest since July 1990, which was the month before Saddam Hussein’s Iraqi forces invaded Kuwait, Energy Department data show. Saudi Arabia is the second-biggest foreign supplier to the U.S., after Canada, and a round-trip between the two countries ties up tankers for 24,000 miles, data compiled by Bloomberg show.
“Chartering activity in the Middle East has started to slow down, indicating a potential drop in seaborne imports, particularly to the U.S.,” Giannakoulis said.
VLCCs plowing the Middle East-to-U.S. route are losing $8,231 a day, according to the London-based Baltic Exchange, a publisher of freight costs on more than 50 maritime routes. Owners sometimes contribute to fuel costs rather than sailing empty.
Demand for VLCCs has fallen in part because of high crude inventories and also because of increased domestic supply, according to Sverre Bjorn Svenning, an analyst at Fearnley Consultants A/S, a unit of Astrup Fearnley.
U.S. oil production averaged 5.99 million barrels a day this year, according to the Energy Department. That would be the highest annual average since 1998.
Bookings to the U.S. climbed in May because Motiva Enterprises LLC was preparing to supply 325,000 barrels a day of oil to a new crude distillation unit at Port Arthur, Texas, according to a June 29 report from Poten & Partners, a New York-based shipbroker. An outage of the unit may continue for several months, Motiva said June 25.
There are 140 VLCCs available in the Persian Gulf for the next 30 days, up from 95 on June 1, according to the Morgan Stanley report. The monthly average spot rate for the tankers is $16,000 a day, half of what they earned in May, it said.
Returns for VLCCs hauling Middle East crude to Asia, the industry’s busiest trade route, fell the most in nine months during June as the surplus of ships expanded and charter demand to hire ships slowed, Baltic Exchange data show.
Daily income for VLCCs on the benchmark Saudi Arabia-to-Japan voyage slid 23 percent to $6,114, according to data from the exchange today. Earnings plunged 51 percent last month, the most since September.
Hire rates for VLCCs on the benchmark voyage declined 3.7 percent to 38.86 industry-standard Worldscale points, a seventh straight retreat, exchange figures showed. The exchange’s assessments don’t reflect speed cuts aimed at reducing fuel costs, vessel owners’ largest expense. Owners can boost returns by slowing ships on return journeys after unloading of cargoes.
The price of ship fuel, or bunkers, added 2.5 percent to $579.37 a metric ton, data compiled by Bloomberg from 25 ports worldwide show.
The Worldscale system is a method for pricing oil cargoes on thousands of trade routes. Each individual voyage’s flat rate, expressed in dollars a ton, is set once a year. Today’s level means hire costs on the benchmark route are 38.86 percent of the nominal Worldscale rate for that voyage.
The Baltic Dirty Tanker Index, a broader measure of oil-shipping costs that includes vessels smaller than VLCCs, declined 0.7 to 677, according to the exchange.
“The VLCC freight market has declined over the last two-to-three weeks in all directions,” Svenning said by phone. “We will see rates remaining under pressure well into August.”
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